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[2011] ZAGPJHC 16
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Rossi and Others v Commisioner for the South African Revenue Service (2010/34417) [2011] ZAGPJHC 16; 74 SATC 387 (22 February 2011)
Links to summary
IN
THE SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
CASE
NO: 2010/34417
DATE:22/02/2011
In the matter between:
PITRO ROSSI
ANTONIO PERA
P AND R
CONSTRUCTION CIVIL ENGINEERING CONTRACTORS
First Applicant
Second Applicant
Third Applicant
And
THE COMMISIONER FOR
THE SOUTH AFRICAN REVENUE SERVICE
Respondent
JUDGMENT
– Final draft
SATCHWELL J:
Introduction
1.
This is an application to compel the
respondent to authorise the payment of a refund in terms of section
102 of the Income Tax Act
58 of 1962 (‘the Act’).
The Applicants further seek a declaratory order to the effect that
the letter dated
19 October 1999 does not constitute an assessment.
2.
Applicants’ case is premised on the
fact that there was no assessment in 1999 because that the
documents submitted do
not constitute an assessment as defined.
Applicants maintain therefore that there was no legal basis for
payments to be made. Hence
the application for a refund in terms of
Section 102 of the Act.
Factual Background
3.
Third
applicant provides civil engineering services for which they use
sub-contractors who invoice third applicant for such services.
An
inspection by officers of the respondent during October 1999 resulted
in an opinion that the third applicant was liable for
payment of
employee’s tax in respect of these sub-contractors for the
period 1 March 1998 – 28 February 1999 and 1
March 1999 –
28 February 2000 in the total sum of R467 390
[1]
.
4.
Negotiations
took place between the third applicant and the respondent with no
resolution. On receipt of a demand for payment in
March 2007, the
auditors of third applicant filed an objection in terms of section 81
of the Income Tax Act
[2]
. That
objection was dismissed by the respondent on 2 July 2007 on the
grounds that it had been filed after expiry of the three
year period
allowed for such objection
[3]
.
5.
Following further correspondence, third
applicant made payments to respondent in May and October 2008.
In March 2009, respondent,
acting in terms of section 99
of
the Act
, attached monies in the
first applicant’s bank account.
Issues before this
Court
6.
The case which applicants have
brought before this court (by way of application) are twofold:
a.
Firstly,
applicants challenge the status of the disputed
‘assessment’ or extract therefrom on
the
basis of an averred failure to comply with the provisions of the Act.
Both the letter dated 19th October 1999
[4]
and an extract from respondent’s computer
[5]
mare contested and respondent has had to concede it cannot now find
the full original assessment.
Secondly, the very claim
for tax itself is in dispute. Applicant maintains that it is not
liable to deduct employee’s tax
in respect of the
sub-contractors and, even if there was a valid assessment to
this effect, such would be incorrect.
As can be seen, the crux
of the applicant’s case is whether or not there were valid
assessments.
7.
Respondent takes the view that the
‘extract’ provided is “conclusive evidence of the
making of such assessment,
and…shall be conclusive evidence
that the amount and all particulars of such assessment are correct”.
Respondent further
submits that third applicant is presently in
arrears in an amount of R 306 910.73 which precludes any refund to
applicants.
8.
In addition, there are a number of
procedural and jurisdictional questions. I am most indebted to
Advocate Molokomme, who appeared
on behalf of the respondent, for his
careful and informative Heads of Argument.
a.
Firstly,
respondent points out that applicants have taken 11 years to
challenge the validity of the 1999 assessment and
have
provided no explanation for what is submitted to be an “inordinate
delay”. I am in agreement that there has been
neither
application for condonation nor provision of sufficient facts to
justify any such condonation. It is trite that a
reasonable
explanation needs be offered and, in this particular case, the fiscus
should be entitled to assume finality in collection
of tax monies,
particularly where the Act sets out certain times frames which cannot
be lightly ignored or rendered ineffective.
[6]
b.
Secondly,
the ‘assessment’ in dispute took place on 20th October
1999 and this application was launched on nearly
ten years later
3rd September 2010. Respondent submits that third applicant did not
timeously object in terms of section
81 of the Act
[7]
which
prescribes certain time periods for noting such objection.
Accordingly, third applicant’s right to object and/or appeal
has lapsed
[8]
. In any event it
is pointed out that respondent is prohibited from reducing an
assessment after the expiry of three years from
date thereof
[9]
.
In the premises, respondent submits third applicant's right to object
and/or appeal against the assessment has lapsed and the
assessment
has become final and conclusive
[10]
.
c.
Thirdly,
applicants have attached a number of documents being invoices from
various service providers alleged to be sub-contractors
and not
employees for purposes of determining the correctness of any
assessment which might have been made. Without commenting
on
the absence of supporting affidavits as to the authenticity and
veracity of these documents, I note that respondent has pointed
out
that there are a number of disputes of fact and that these are on
material issues – i.e. whether or not there was ever
an
assessment (compliant with the Act), the status of the ‘extract’
submitted by respondent and the merits of applicants
challenge to the
basis of respondents claim for the taxes recovered. This motion court
cannot decide these matters since the facts
upon which applicants
rely are not admitted by respondent
[11]
.
9.
I do not believe it necessary or
appropriate for this court to discuss or determine either the merits
or these other issues raised.
Jurisdiction
10.
It is my view that this application can and
should be decided on the issue of jurisdiction alone.
Objections to
assessments and the Special Tax Court
11.
The
procedure in respect of assessments and objections thereto is
contained in section 81 read with section 107A of the Act and
part A
of chapter III of the Act and the rules promulgated in terms of
section 107A.
[12]
This
procedure can be summarised as follows:-
a.
the commissioner makes an assessment;
b.
in terms of Rule 3, the commissioner must
provide reasons for the assessment
on
demand
unless he is of the opinion that
adequate reasons have been provided;
c.
in terms of section 81(1) and Rule 4, the
tax payer may object to the assessment;
d.
in terms of section 81(4) and Rule 5, the
commissioner may allow or disallow the objections;
e.
in terms of section 83 of the Act and Rule
6, the tax payer may appeal against the disallowance of his or her
objection;
f.
if there is an appeal, the commissioner
must give his grounds of assessment in terms of Rule 10; and
g.
the tax payer must give his grounds of
appeal in terms of Rule 11.
12.
Once there is an assessment or purported
assessment, the starting point for expression of dissatisfaction of
any sort is to lodge
an objection as provided for in terms of section
81. This the applicants did but their objection was disallowed on the
grounds
that it was lodged out of time.
13.
Thereafter, applicants have not taken
the decision of the respondent to disallow the objection on either
objection or appeal
as provided for in terms of the Act.
14.
Finally, a dissatisfied taxpayer may appeal
against such assessment to the tax court as provided for in terms of
section 83. The
applicants have not done or were precluded from doing
by their failure to comply with the time periods.
15.
I am, with respect, in agreement with what
was stated in
Van Zyl NO v The Master
and Another 1991(1) SA 874 E
at
877/878:
”
The
only way in which these assessments can be questioned is in the
manner provided for in the Act, viz, by objecting to the Respondent
in terms of Section 81 of the Act and then appealing to the Special
Court in terms of Section 83 of the Act.
The Act specifically prescribes that
procedure and entrusts the determination of the amount owing to the
Respondent and on appeal
from his decision, to the Special Income Tax
Court.
If
he was of the view that the document tendered was not an assessment
issued by the Respondent at all or that there was some patent
error
in the calculation of the claim, …the master could expunge the
claim altogether or reduce it so as to reflect the
amount assessed;
B
ut
apart from such patent defects, the only way in which the validity of
the amount claimed can be brought into question is in the
manner
provided for in the Act…it is not necessary to decide whether
or not the assessments were correctly made. That is
a matter for the
Special Court to decide and I have no intention of usurping the
functions of that Court
(my
underlying)
.”
16.
Since applicants dispute the
existence of any assessment and dispute that
annexure PO1 is an ‘extract’
of or from an assessment as
provided for in the Act, those issues and disputes become, in line
with
Van Zyl supra
,
a matter for the respondent to determine. Thereafter, the only way in
which it is open to applicants to challenge the assessment
or amount
claimed “
is a matter for the
Special Court
”.
17.
The
Special Court constituted in terms of section 83 (4) of the Act
[13]
,
is a specialised court composed by the president who is a Judge of
the High Court and two assessors, one of whom is an accountant
and
the other a commercial person. The benefits to the taxpayer of such a
specialised Tax Court was expressed in
Metcash
Trading Ltd v Commissioner, SARS 2001 (1) SAS 1109 CC
: “…
in
any event, by the very referral of cases to that specialist tribunal,
the Act can be seen to have designated an independent and
impartial
tribunal
specifically
tooled to deal with disputed tax cases...
(my
underlining).” This motion court of the High Court is
certainly not a court “
specifically
tooled to deal with disputed tax cases
”.
18.
I am of the view that the reason why
applicants approach this court and seek to claim a different
jurisdiction in respect of applications
for refund in terms of
section 102 of the Act solely by reason of their failure to
comply with time periods and the fact
that they now perceive
themselves to be beyond the reach of any other forum.
19.
In
any event, the order sought by applicants is not an interim order but
is a final order. The Constitutional Court
in
Metcash
supra
found that the High Court has jurisdiction to adjudicate upon tax
matters
only
in circumstances where the relief sought is of an interlocutory
nature
[14]
.
20.
Furthermore,
where the High Court does have jurisdiction to hear and determine
income tax cases it would appear to be in respect
of legal
issues alone.
[15]
However, as
to whether a matter for decision involves a matter of fact or a
matter of law must be decided by the president of the
Tax Court
sitting alone
[16]
.
Section 102
21.
Section 102(1)(a) provides that any
amount paid in respect of any assessment by any person shall be
refundable to the extent
that such amount paid exceeds the
amount so assessed.
22.
Applicants submit that an application for a
refund, in terms of section 102, cannot be brought before the Tax
Court because that
court is a creature of statute which is only
empowered to review the correctness of assessments on appeal in
terms of section
83(1) of the Act. Accordingly, it was argued that
the Tax Court is not clothed with the necessary jurisdiction to
adjudicate upon
applications under section 102 of the Act.
23.
Reliance was placed by applicants
counsel on
Estate H M Brownson v CIR and
Others
6 SATC 166
to the effect
that the Tax Court can only hear matters arising from assessments
issued by the Commissioner.
24.
Brownson supra
provides no assistance because it is clear that the very issue
in dispute and which applicants seek to bring before
this court
arises from an assessment. The purported application for refund
does not exist
in vacuo
.
The application for refund arises from and is premised
upon the dispute concerning the assessment.
25.
It was argued for applicants that, where a
taxpayer has failed to timeously raise an objection to an assessment
or has made
an overpayment, “
he
would ordinarily be in a hopeless position and without remedy –
thus the reason for the enactment of section 102, in order
to remedy
such situation
”. Support for such
proposition was sought in
Crown Mines
Ltd v Commissioner for Inland Revenue AD
32 SATC 190
and
Stroud Riley & Co Ltd v SIR
36
SATC 143
at 144
.
26.
The argument of applicant seems
to be that section 102 was enacted solely to assist a taxpayer who
has not availed itself of prescribed
remedies or has been
unsuccessful in the exercise thereof. In other words, it
is suggested that section 102 offers
an unhappy taxpayer a third or
fourth bite at the fiscal cherry.
27.
With this argument I cannot agree.
Indeed, these judgments are not of assistance to applicants.
Either counsel
has misquoted from the judgments or not had regard to
the facts and the issue before the court.
28.
In
Crown Mines
supra
, Innes CJ at page 195 did indeed
write that the position of a taxpayer who overpaid and failed to
lodge an objection under a mistake
of law would “
ordinarily
be hopeless
”. However, the
learned Chief Justice went on to state “
whether
such remedy (by way of condictio) would lie under similar
circumstances in respect of an overpayment made under a mistake
of
fact is a point on which it is unnecessary to express an opinion
”.
( my insertion) Accordingly, the Appellate Division expressed no
opinion as to whether a taxpayer could proceed where there
was an
overpayment made under a mistake of fact. It is not
argued in the present case that any overpayment was
made under
mistake of fact. It is correct that the facts are in dispute in
the present application as regards liability of
the taxpayer but the
overpayment was made because the respondent believed it to have made
an assessment which had not been paid.
In short, it would
seem that applicants may well be viewed as taxpayers whose position
the learned Chief Justice described “
hopeless
”.
29.
Stroud Riley supra
was concerned with the manner in which the Secretary should exercise
his discretion. It was held that no “assessment”
had been made but only a receipt issued. In that case the SIR
did not rely on what purported to be an extract from an assessment
as
is presently the case. Since no assessment had been made and
the SIR was in agreement that there had been an overpayment,
the
powers of the Secretary conferred by section 102 of the Act had not
been restricted by the passage of time subsequent to the
payment of
the tax. The judgment proceeds to set out the
powers of the Secretary in such circumstances –
“
the
obvious intention of the legislature in enacting s 102(1) of the Act
was to empower the Secretary to repay any amount of tax
which he was
satisfied in excess of the amount properly chargeable…. This
general authority was not diminished by its restriction
in certain
cases by the provisions of ss (2) of that section. … the
provision conferring such authority upon the Secretary
imposed upon
him a duty, when he was satisfied as required by the Act, to make the
refund which it authorised him to make
(at page 151)”.
30.
These
judgments are certainly not authority for applicants proposition that
a taxpayer who has failed to follow the remedies set
out in the
Act
[17]
has available to it an
additional and alternative forum, namely the High Court,
which exercises concurrent jurisdiction
with both the Tax Court and
the Commissioner.
31.
This led to the further submission on
behalf of applicants that the jurisdiction of the High Court is never
ousted in such matters
and that it retains jurisdiction to entertain
claims or give any order it would have been empowered to entertain or
give at common
law. I queried if this proposition meant
that enactment of the Income Tax Act and the creation of the Special
Tax Court
simply meant that the procedures in the Act and the
existence of the Tax Court were no more than parallel procedures and
structures
operating in tandem with the High Court who exercised
concurrent jurisdiction with the Tax Court. The answer from
applicants
counsel was in the affirmative.
32.
With this proposition I cannot agree.
Firstly, it begs the question why the Legislature conceived of a
Special Tax Court if every
tax dispute could be brought in either
that court or the High Court at the taxpayer’s election.
Secondly, it is inconceivable
that the Legislature intended to create
competing and concurrent fora for resolution of tax disputes with
resulting confusion as
to selection of forum. Thirdly, it would not
be possible to establish any useful body of precedent for the benefit
of both taxpayer
and SARS if different fora developed different law
on the same issues. Fourthly, the role of the High Court has
already been
identified in the Act – it is to provide a judge
as a member of the specialised Tax Court to hear appeals and not
matters
of first instance. Fifth, our courts should be alert to the
dangers of forum shopping.
33.
In
Metcash
supra
, the Constitutional Court
endorsed these procedures I have outlined in paragraph outlined
above , stating :-
"firstly
section 31 constitutes a valuable weapon in the hands of the
commissioner, but the compulsive force of this mechanism
of the Act
goes a good deal further. The dissatisfied vendor can, by lodging an
objection under section 32 of the Act and, that
failing, by noting an
appeal under section 33, both compel the commissioner to reconsider
the assessment and have its correctness
reconsidered afresh by an
independent tribunal
(para 11)(my
underlining)".
34.
It seems clear that the Constitutional
Court took the view that both objection and appeal are to be
considered by the same tribunal
- namely be the Income Tax
Court constituted in terms of section 83 of the Act. It is
therefore difficult to conceive why
an applicant should argue a non
specialist court would have concurrent jurisdiction.
35.
The powers of the courts in
applications for a refund are curtailed. As was stated in
Crown
Mines supra
:
“
The
question whether there has been an excess payment or not has been
left to the decision of the respondent and against this decision,
there is no appeal.
"Speaking
generally, assessment must precede payment;
the
obligation to pay only arises upon a due assessment;
now it is at the assessment stage that
questions of liability would ordinarily arise, and the legislature
contemplated that at that
stage they should be settled, elaborate
provisions made for lodging objections to an assessment, for the
settlement of disputes
arising therefrom, and for an appeal in all
questions of law;
The
intention was to leave such a case in the hands of the Commissioner;
he is empowered to authorise a refund, but only if it is
proved to
his satisfaction that there has been a payment in excess of the
amount properly chargeable. His judgment is to be the
sole test.
”
36.
Applicants chose not to utilise the
“elaborate provisions” provided for in the Act. As was
said in
Crown Mines supra
,
it is the Commissioner in whose hands the authorisation of a refund
is placed.
37.
From that decision there appears to be no
appeal. See
also Crown Mines
supra
at page 100 in this regard
where was stated “... taking
into
consideration the provisions of appeal in case of objection to the
assessment I should say that it was not intended by the
Legislature
that there should be an appeal under section 9
5.”
38.
The end result would appear to be that the
aggrieved taxpayer must proceed to challenge the assessment in terms
whereof payment
has been made or extracted. In this case, the
taxpayer applicant had the opportunity to dispute whether or not the
letter
received or the demand made or the purported extract was an
‘assessment’. That dispute should have been aired
by way of objection and then by way of appeal to the Tax Court –
and within the prescribed time periods.
39.
The issues which the Applicants have
brought before this Court are the issues for which the specialist
tribunal referred to in
Metcash
was created.
Conclusion
40.
I am of the view that this court does not
exercise jurisdiction to decide this dispute.
This
dispute should have been pursued by way of an objection lodged with
the Commissioner and thereafter appealed to the Special
Tax
Court which is the appropriate forum
for
these matters
.
41.
Accordingly, the application for
orders in terms of prayers 1 to 6 of the notice of motion dated
1st September
2010 is dismissed with costs.
DATED
AT JOHANNESBURG THIS 22nd DAY OF FEBRUARY 2011
K. SATCHWELL
Judge of the High Court
Date of hearing:
[1]
See
annexure ….. and annexure….
[2]
Annexure
C
[3]
See Annexure D which refers to section 81(2) of the Act
[4]
See
Annexure B
[5]
See
Annexure PO1 to the answering affidavit.
[6]
See
Van
Wyk v Unitas Hospital and Another 2008 (2) SA 472 (CC)
[7]
Section
81 of the Act read with the rules promulgated in terms of section
107A of the Act provides that “a tax payer who
is aggrieved by
an assessment may object to such an assessment in the manner and
under the terms and within the period prescribed
by the Act and the
rules promulgated in terms of section 107A”.
[8]
Section
81(2)(b) provides that the prescribed period within which the tax
payer ought to lodge an objection to an assessment and/or
a revised
assessment is a period of 3 years after which the period for
objecting may not be extended (see section
81(5) of the
Act)
[9]
Section
79A(2) of the Act
[10]
Section
81 (5) of the Act
[11]
See
Plascon
Evan Paints v Van Riebeck paints (Pty) Ltd 1984(3) SA 623 AD
[12]
It
is noted that the provisions of section 81(2) (b) only came into
operation in 2003 and accordingly any three year period applicable
to applicants would only commence on that date
[13]
See
section 83(1) of the Act
[14]
At
paragraph 45
[15]
Friedman
and Others NNO v CIR
1991 (2) SA 340
(W) where was
stated
“I am in agreement with the finding of the Court that
where
the dispute involved no question of fact
and
is simply one of law the Commissioner and the Special Court are not
the only competent authorities to decide the issue- at
any rate when
a declaratory order such as that in the present case is being
sought”.
[16]
Section 83 (4A) of the Act
[17]
Either
by way of objection or appeal to the Commissioner.